Major supermarket chain Seiyu Ltd. said Monday it will sell Tokyo City Finance Co. to the U.S. investment fund Lone Star Group on Friday.
Seiyu said the sale of its financing unit will help it reduce its interest-bearing debts of 609.3 billion yen by 150 billion yen.
Seiyu, an affiliate of Wal-Mart Stores Inc., envisions concentrating its financial and personnel resources on its mainline retail business and enhancing its ties with Wal-Mart by reducing its exposure to the financing business, according to Seiyu officials.
Lone Star acquired the insolvent Tokyo Sowa Bank last year, took over its deposit and lending operations, and changed its name to Tokyo Star Bank.
Lone Star appears intent on expanding its financing business in Japan on the strength of its acquisition of Tokyo City Finance.
Seiyu said it will hand over all of its shareholdings in Tokyo City Finance as well as its outstanding loans to the subsidiary to Lone Star through the group’s Bermuda-based investment arm, Tokyo Capital Investments Ltd.
Seiyu said it will hand over 100.23 million common shares as well as a combined 40.8 million A-type classified shares to Tokyo Capital Investments.
The combined value of Seiyu’s outstanding loans to Tokyo City Finance alone is estimated at 33.1 billion yen.
The predecessor of Tokyo City Finance, Seiyu Finance, was set up in 1982 with the aim of concentrating emphasis on extending small-lot loans.
But it soon expanded into providing loans to finance speculative real estate investments in the late 1980s. In 1989, it adopted the current name, Tokyo City Finance.
The burst of the asset-inflated bubble plunged the company into deep financial trouble.
In December 2000, creditors waived a combined 200 billion yen in claims on loans to Tokyo City Finance. In addition, Seiyu itself provided 250 billion yen in financial aid to the subsidiary.
Last August, Seiyu recapitalized Tokyo City Finance through the purchase of 20.4 billion yen worth of new shares floated by Tokyo City Finance.
Tokyo City Finance, capitalized at 15.2 billion yen, booked net profits of 500 million yen and pretax profits of 3.7 billion yen in closing the books for the business year to last February.
Wal-Mart currently owns 6.1 percent of Seiyu through its Swiss subsidiary, Wyoming Holding GmbH. Under April’s agreement with Seiyu, Wal-Mart has the right to acquire a 33.4 percent stake in Seiyu by the end of the year.
In April, Seiyu agreed to give Wal-Mart the right to acquire a stake of up to 66.7 percent in it by the end of 2007.
With the decision to sell the shares to Lone Star, Seiyu appears to have lived up to Wal-Mart’s desire to distance it from the nonretailing business, industry officials added.
Lone Star was set up in 1991 in Dallas. As one of the biggest investment funds on the global market, it has invested collected money in a combined 32,000 investment projects.
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